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I found the Jesters Chains in the upper level of the Assylum's dungeon. There is a weird machine that you can deposit the coins that you found in this dungeon to create items. One of the items is the Jesters Chain. Another item that you can create is Boots of Speed; however, you will not have enough coins to create both of these items. Another pair of these boots can be found in the Astral Prision.
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